Is YES Bank's turnaround story complete? Prashant Kumar answers

We have made a provision of 75% but we are able to recover between 50% to 60% of bad loans, wherever we are going for resolution, Prashant Kumar, Managing Director & Chief Executive Officer, YES Bank.

Nine months after the moratorium imposed, can you say the YES Bank turnaround story is now complete?
The reconstruction of the bank has been completed and we are back into the business with full bang. We are very comfortable on the capital side with the 20% capital adequacy and on liquidity also we are seeing very good traction from both retail as well as corporate deposits. We are meeting all the regulatory, liquidity requirements from the RBI. In terms of recoveries, there is improvement in demand from the retail side, MSME side, small corporate also.

In terms of collection also, compared to the first quarter of the current financial year, things are much better and we are quite hopeful that going forward things would be much better not only for Yes Bank but for the entire banking industry. The most critical thing would be in terms of credit growth. If the credit growth picks up, that would be really good for the banking industry.

Your operating profit growth has been very healthy. How has the credit growth been in different segments?
On the operating profit side, in the quarter one and two, we have been able to demonstrate a very good operating profit despite the quarter one being almost a washout from the pandemic point of view. We are gradually reducing our cost of deposit and we are also disbursing new loans.

So during the current quarter, we are hopeful to disburse more than Rs 10,000 crore on the retail and MSME side and also in the corporate side. Disbursement would be in the range of Rs 3,000- 4,000 crore but at the same time, the most important part is in terms of controlling our costs. In quarter two, we have been able to reduce our costs by almost 20%. This momentum would continue and for the full year, our cost reduction would be in the range of 15% to 20%, The operating profit and the recoveries from our stressed assets would help us meet the credit cost.

What is your credit cost guidance for FY21 and FY22? What is the outlook? Has there been a marked improvement across trouble sectors such as aviation, hospitality and real estate?
When we started the year, nobody was able to anticipate how long the pandemic would continue and what would be the impact. There has been improvement but this improvement is not across all the sectors, all the industries. Three sectors -- real estate, hospitality and anything related to airlines -- have been severely impacted and we are not seeing that kind of improvement in these sectors during the current quarter also. Maybe next financial year would be much better. So, with the dispensation which we got from the regulator that by restructuring and slippage, it would remain at a little elevated level for the entire banking industry. We are going to see the actual impact in the fourth quarter.

Mortgage rates have come down like never before and homebuyers have been on a spree to buy due to the stamp duty cut as well. Do you think that the banking sector is seeing a material pickup and the real estate turning can help banks like yours?
In terms of individual home loans, the rate of interest is very low and we have seen a momentum in terms of purchasing the homes by the buyers and that momentum has also been helped by reduction in stamp duty by the government of Maharashtra and the builders are also offering discounts on the sales.

What we are seeing is that the unused inventory is being consumed by the new buyers but from the real estate side, the most important thing would be if they can complete the unfinished projects. That is something we are looking at and it is not only going to help the real estate developers, it is also going to help the individual homebuyers where their money has been stuck for years together.

This is something we are looking at which. During the Budget our key expectation would be some help for real estate.

It has become clear that the focus is pivoting from corporate to retail. Retail used to be 45%. Is this going to move up? Would you focus on higher quality corporates?
Our strategy does not have to be only retail focussed but definitely the focus would shift from the corporate to retail. It used to be around 45% retail and MSME. In the next 24 months, we would like to see it at around 60% but we would continue to be on the corporate side also. But definitely for some time we would be not looking at very large project loans but we would be very keen to participate in the working capital consortiums and also the trade finance for the corporates.

On retail and MSME, we are seeing good returns. It is also good in terms of risk management and more granular loans. We are also able to connect a large number of customers. We are adding almost 60,000-70,000 customers every month on the liability side and this gives us an opportunity to cross sell.

Similarly, when one goes for retail loans, it gives us an opportunity to engage with those customers on the liability side. For our bank, which is also very strong on the digital side, it has to remain more focussed on retail and MSME. That would be the right strategy.

How is YES Bank tapping into digital opportunity? How much market share do you have in UPI? What about digital loan organisation? Will underwriting eventually move to digital as well?
YES Bank is very strong on the transaction banking side, around 40% of the UPI transactions which is more than 800 million transactions a month is being routed through YES Bank. Apart from the dominance on the transaction side, we are also moving in terms of loan origination by using the digital capabilities and very recently we have entered into a tie-up with one of the best in the world -- Salesforce -- where the entire credit underwriting would be in a digital mode. The decisions in terms of the credit underwriting which takes anything from seven to 10-15 days, would happen in two minutes and in those times we are going to do the entire background check on the customers from the rating profile, from their income tax and so on and so forth.

On the retail and MSME side, digital capabilities in the next financial year would be very-very helpful not only in terms of expanding the loan book but also in terms of controlling the cost and taking the right credit cost.

Are you going to meet the Rs 5,000-crore recovery target for this year? Rs 4,000 crore would have to be recovered in Q3 and Q4. Would that be achievable?
At the beginning of the year, we had a target of Rs 5,000 crore of recovery from our stressed pool during the current financial year. In the first two quarters, we could recover Rs 900 crore but we are absolutely on track and in the current and next quarter we would be able to recover around Rs 4,000 crore which would have an appropriate impact on P&L of around Rs 2,500 crore. But what we are seeing is that we have made a provision of 75% but we are able to recover between 50% to 60% wherever we are going for resolution and wherever we are able to enforce the securities. Keeping in view this trend, we are quite hopeful we would be able to recover around 50% from our stress book over a period of time.